Libya’s Rival Oil Company Leaders Reach Deal to Unify Sector

Once-rival leaders of Libya’s National Oil Corporation (NOC) have agreed on a structure for the group that aims to put to rest squabbles over who has the right to export the country’s oil, according to a statement.

Oil industry leaders in OPEC-member Libya have said they could quickly double production to over 700,000 bpd if conditions stabilized. Before a 2011 revolution, Libya was producing 1.6 million bpd.

The rival oil officials agreed in principle to unify the oil sector in May, but the agreement on the structure and leadership of a joint group took weeks of meetings to iron out.

Mustafa Sanalla, who led the Tripoli-based NOC, will remain chairman of the group, while the head of the eastern-backed NOC, Naji al-Maghrabi, will serve as a board member, according to a statement seen by Reuters.

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A UN-backed unity government that arrived in Tripoli in March is seeking to replace two rival governments that were set up in Tripoli and the east, and to unite Libya’s many political and armed factions.

A united oil sector would be a key support for the unity government. Libya relies heavily on oil exports as a source of income and hard currency.

“This agreement will send a very strong signal to the Libyan people and to the international community that the Presidency Council is able to deliver consensus and reconciliation,” Sanalla said in the statement.

Al-Maghrabi said both men “made a strategic choice to put our divisions behind us” as there is “no other way forward.”

The joint NOC will also submit periodic reports to committees established by both the Presidential Council and the House of Representatives, which it recognized as the highest executive and legislative authorities within Libya.

Oil Glut Continues to Tank Prices

The world’s top oil companies are set to report their worst quarterly results yet in the current downturn but a recent recovery in crude prices is raising hopes the market has bottomed out.

An ever intensifying oil supply glut took global prices to a near 13-year low of $27.10 a barrel on Jan. 20, exacerbating pressure on oil producers already grappling with a more than 70 percent slide in prices since mid-2014.

“The 1Q16 reporting period looks set to be even worse than what we thought was already an especially ugly 4Q15,” said Jason Gammel, equity analyst at Jefferies.

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Oil companies have slashed spending budgets by more than 25% since 2014, scrapped dozens of multi-billion dollar projects, slashed tens of thousands of jobs and reduced costs by at least 20% in the face of the price slump.

Some companies, such as Royal Dutch Shell RDS.A, might need to go further. Shell completed its $50 billion acquisition of BG Group in February, but might need to cut deeper in order to maintain its dividend and finance the deal.

Britain’s BP BP will be the first of the “oil majors” to report results on Tuesday. It recorded its worst-ever annual loss in 2015 while Shell posted its lowest annual income in over a decade, setting the scene for a poor start to 2016.

A stunning 60% rally in oil prices from their January low, however, has given strong tailwind to energy shares as investors are willing to look past the near-term pain.

“We’re seeing money flowing into the energy space and early money has gone into the lower-risk names among oil majors,” said Anish Kapadia, analyst at Tudor, Pickering, Holt and Co.

“There is still a lot of money sitting on the sidelines that will get into the sector once things get more bullish.”

The price/earnings ratio (PE) of oil majors, including U.S. heavyweights ExxonMobil XOM and Chevron CVX, has risen on a 12-month forward basis across the board since mid-February, suggesting investors expect stronger growth ahead.

They will be scrutinizing companies’ plans to return to growth after cutting so deep into future projects and production, said Kapadia.

“It is still a challenging sector. The oil price improvement will clearly help things, but if anything it highlights the problems of how companies have cut back on capex dramatically and are not investing in new projects,” Kapadia said.

Profits from refining and trading, or downstream business, which were a huge help in counterbalancing some of the oil production losses over the past 18 months, are also set to be weak in the first quarter.

BP’s global refining margin benchmark declined in the first quarter to $10.5 a barrel, from $15.26 a barrel a year earlier and $13.2 a barrel in the fourth quarter of 2015.

Brent prices averaged $35.2 a barrel in the first quarter, 36% lower than a year earlier.

Investors will also be seeking reassurance that dividend payments will be maintained, a key factor making Big Oil attractive. So far only Italy’s Eni and Spain’s Repsol have cut dividends in the current downturn.

BP struck a cautious tone on dividends this month, though, saying it aimed to maintain payments but could review the payout policy if oil prices remained lower for much longer.

Marathon Oil Just Inked Deals to Sell Almost $1 Billion More Assets

Marathon Oil said on Monday it had signed agreements to sell non-core assets for $950 million, bringing its total sales through divestitures to about $1.3 billion since last August.

The oil and natural gas producer, which did not identify the buyers, said it will divest all of its Wyoming upstream and midstream assets for $870 million, excluding closing adjustments.

The Wyoming properties, mainly waterflood developments in the Big Horn and Wind River basins, averaged 16,500 barrels of oil equivalent per day in first quarter 2016 production. The deal, expected to close in mid-2016, also includes a 570-mile pipeline.

Marathon mro said it will also sell its 10 percent working interest in the Shenandoah discovery in the Gulf of Mexico, operated natural gas assets in the Piceance basin in Colorado, and certain undeveloped acreage in West Texas for a total of about $80 million.

Chief Executive Lee Tillman said the company had surpassed its targeted range of $750 million to $1 billion in total non-core asset sales.

With oil prices having fallen 60% since mid-2014 to around $40 a barrel, companies are using a mix of asset sales and financings to weather the down market.

Rumors of impending bankruptcies in the U.S. shale patch have become commonplace in recent weeks. Last week, Chesapeake Energy Corp. chk, one of the U.S.’s biggest shale gas producers, was forced to issue a statement denying it was planning to file for Chapter 11 protection, after its stock fell 50% in a day.

Moreover, while many firms were able to cushion the blow of collapsing prices last year by virtue of having sold their output forward, the forward curve in futures markets this year offers no such comfort. Brief hopes that the world’s largest producers, Russia and Saudi Arabia, would cooperate to cut output and end the glut were dashed early Tuesday after a meeting between their respective ministers ended without a binding agreement.

Despite its doom and gloom, the report offered a silver lining to one segment of the industry: oilfield service providers that supply the workers and equipment needed to drill wells. Because servicers have lower capital costs than producers, there have been fewer bankruptcy filings in their ranks. Only 14 of the 53 energy companies in the United States that filed for bankruptcy last quarter were service providers. Deloitte said that trend is expected to continue—at least in the short term.

The World’s Most Valuable Company Is Considering an IPO

Saudi Arabia’s state-owned oil company Aramaco, likely the world’s most valuable company, could sell its shares in an initial public offering, according to statements by the kingdom’s Deputy Crown Prince Muhammad bin Salman.

A possible sale of Aramco shares is under review, said Prince Muhammad in his first on-the-record interview with the Economist. To date, two high-level meetings have been held to discuss an IPO, which could take different forms. Saudi Arabia could sell investors a stake in some of Aramco’s oil or other “downstream” divisions, or it could sell shares in the parent company.

“Personally, I’m enthusiastic about this step,” he said. “I believe it is in the interest of the Saudi market, and it is in the interest of Aramco, and it is for the interest of more transparency, and to counter corruption, if any, that may be circling around Aramco.”

Aramco is a highly secretive company. Officials have said that it is worth “trillions of dollars,” though the company hasn’t released any details on its revenues and revealed only glimpses into its oil reserves. Even so, Aramco is largely considered to be the world’s most valuable company, as reported by the Economist. The oil producer has about 261 billion barrels of oil in reserve. That’s ten times more than ExxonMobil XOM, which is currently worth $321.5 billion.

If the kingdom were to sell shares in Aramco, it would likely initially float only about 5% of total ownership of the company. Saudi Arabia may sell-off more of the company to public shareholders overtime, but the kingdom is unlikely to give up control of the company.

The discussion of a potential IPO, which would take place on Riyadh stock market, comes amid a year-plus slump in oil prices worldwide, as well as rising tensions in the Middle East, particularly between Saudi Arabia and arch-rival Iran. Oil prices have fallen below $35 a barrel, which has hit the kingdom’s economy hard. A public offering of Aramco shares could both help provide much needed cash to balance its budget as well as provide greater transparency into an opaque and massive company.

One of the Oil Sector’s Biggest Cash Machines is Running Dry

Kinder Morgan Inc KMI slashed its dividend by three-quarters Tuesday, marking the first time the U.S. pipeline giant has cut payouts to shareholders since it has been a publicly traded company.

The move, which will reduce the annual dividend to 50 cents a share from about $2 a share, is an acknowledgement that the worst oil price crash in six years is hurting once-resilient pipeline companies, who are supposed to be more insulated against price swings than upstream producers.

Big natural resource companies have been some of the stock market’s biggest dividend payers in recent years, and Kinder’s announcement, coming on the back of a similar one by miner Anglo American PlcAAUKY, will be a source of major concern for income-focused investors.

Kinder Morgan shares have shed about half their value since the company first warned on Oct. 21 that payouts would slow. In after hours trade on Tuesday the shares fell nearly 7% to $14.67.

Moody’s put the company on credit watch negative last week after it bought a stake in a leveraged natural gas pipeline system, and several analysts downgraded the stock.

“We evaluated numerous options, including significant asset sales, but ultimately concluded that these other options were uneconomic to our investors in the long run. This decision was not made lightly,” he said in a statement.

Analysts at Tudor Pickering Holt told clients in a note that the cash would be better spent reinvesting or buying back shares.

“We’d argue that while market clearly hates the possibility of a dividend cut, a full payout is the least effective use for that cash.”

Once the darlings of investors, growth prospects of pipeline companies have been undercut by a 50% slide in oil prices and tough environmental reviews that have delayed projects.

Pipeline companies have been especially popular with investors in recent years for their ability consistently to pay and grow large dividends.

But their attractiveness has faded since at least the summer as executives at some of the biggest pipeline companies, including Plains All American LP, have warned of slower or variable dividend growth.

Investors say they are skittish over the prospect of rising U.S. interest rates, a dimmer outlook for additional new volumes of oil and natural gas flowing onto new midstream systems, as well as the potential for lower shipments and fees on existing lines.

Big oil turns to big data as oil prices plummet

In the face of sliding oil prices, oil and gas companies are increasingly embracing new data tools to help cut costs and manage resources more efficiently, according to a new report.

The slide in oil prices —from over $100 last year to $38 earlier this month— might be good for drivers. But the price drop is shaking up the U.S. oil industry by depressing profits and causing companies to cut jobs.

BP’s CEO Bob Dudley said earlier this year that the oil industry had been living in a “world of luxury” for the last few years as prices remained above $100 a barrel. BP itself posted a $6.3 billion loss in the most recent quarter and warned of more layoffs ahead.

In this new world of low and volatile oil prices, energy companies are turning to data tools — sensor networks, algorithms, mobile tech, and computing — to help lower costs and to eek out as much efficiency as possible from oil infrastructure, according to Lux Research, which published the report about the energy industry’s increasing use of data.

BP is working with GE GE, and its software Predix, to make BP’s oil wells smarter. By the end of the year, BP says it will have 650 wells connected, with each well dumping roughly half a million data points every 15 seconds into GE’s software.

Previously, BP had built its own software to handle the data from its wells. BP also has what it calls the world’s largest supercomputer for commercial research that has 2.2 petaflops of computing power (a measure of a computer’s processing speed). BP says the facility handles enough data to “fill 30 miles worth of 1 gigabyte memory sticks lined up end to end.”

The growing market for oil data is also a boon for startups. Silicon Valley startup Tachyus has developed data models that the company says are being used at 6,000 oil wells, helping oil operators increase oil production by an average of 20% to 30%.

Tachyus’ software can determine how best to stimulate a specific oil well, can calculate the optimal water injection rate to stimulate the well, and can predict if there might be equipment mechanical failures at wells across an oil field. The company recently closed funding from Founders Fund, the venture capital firm created by former PayPal founders including Peter Thiel.

All of these data tools are meant to help oil companies cut costs or manage their oil assets more efficiently. Natural gas companies are using the same types of tools to manage gas wells, identify new gas wells, and cut gas leaks on pipes.

BP swings to $5.8 billion loss on Gulf charge, oil slide

BP Plc’s BP woes show no sign of ending as the company swung to $5.8 billion loss in the second quarter, thanks to falling oil prices and another $9.8 billion in charges to settle the remaining U.S. government claims for the Deepwater Horizon disaster.

The company’s operating business looked little better, after a quarter in which crude prices fell to their lowest level in six years in a heavily oversupplied global market. Underlying cost replacement profits, the measure tracked by most analysts, fell to $2.43 billion from $5.90 billion a year earlier (before the sharp fall in crude prices) and from $2.53 billion in the first quarter of 2015. The bottom line was saved by BP’s downstream division, which includes refining, gasoline distribution and oil trading, and which generated over three-quarters of total underlying profit. By contrast, the contribution from its stake in Russian oil giant Rosneft halved to $510 million and upstream profits fell by nearly 90% to $494 million.

And there’s more gloom ahead: the company expects refining margins to shrink in the third quarter, and the spot crude price has tumbled in recent weeks as world commodity markets have taken fright at the scale of the economic slowdown in China. It expects its output of oil and gas to be broadly flat in the current quarter.

Like every other oil company, BP is scrambling to cut costs. It cut its capital expenditure by 22% in the first half of 2015 to $9.1 billion, and now expects full-year capex to be less than $20 billion, down from $22.9 billion in 2014. Some of those savings are being diverted to pay for other permanent cost reductions: the company now expects restructuring charges of $1.5 billion this year, up from the $1 billion it announced in December.

But it was the price of oil, which rallied to more than $59, that fueled the biggest individual stock gains.

Six out of the top 10 performers in the S&P 500 were energy companies, with Texas-based oil and gas producers Southwestern Energy SWN and Range Resources RRC, along with utility NRG Energy NRG, leading the way by posting increases of nearly 6% each. Chesapeake Energy CHK and offshore driller Transocean RIG also gained more than 5% apiece, followed by Noble Energy NE, which rose more than 4%.

Interestingly, the energy producers among those winning stocks actually get more of their sales from natural gas, which fell on Friday, than from oil.

But several of the companies’ shares had been down previously during the week after they reported a mixed bag of first-quarter earnings results. Part of the rally may just have been due to a bounce back off those lows.

On the flip side, several companies that had recently been on a hot streak gave back some of those gains Friday. The biggest loser was Monster Beverages MNST, which fell nearly 11% after reporting earnings Thursday that missed Wall Street’s expectations. The maker of energy drinks took a hit on international sales because of an unfavorable currency exchange rate, while also paying out big fees to terminate agreements with its distributors in preparation for a new distribution deal with Coca-Cola KO.

Meanwhile Salesforce CRM, which had spiked 9% over the last two weeks on rumors that a big buyer—Microsoft MSFT has been heavily speculated—was prepping a takeover bid, declined almost 3% on reports that the rumors were false.

Overall, Friday’s market rally seemed healthy, despite investors’ rising concern that stock valuations are reaching lofty heights. Both the Dow Jones Industrial Average, which rose 267 points to close at 18,191, and the S&P 500, which closed at 2,116, remained below their record highs. The same was true of Nasdaq, which added 58 point to close at 5,004.

The fact that the gains were led by energy companies, which have been trading at depressed prices, while some high-flying stocks came back to earth. That points to a continuing run for this six-plus-year bull market because the moves brought those stocks closer to reasonable values.

Halliburton joins in on oil company layoffs with 6,400 job cuts

Halliburton plans to cut 6,400 jobs, making it just the latest company in the energy industry to slash its workforce.

The oil services giant said Tuesday it would lay off 8% of employees amid depressed oil prices and a scramble to reduce costs.

“We value every employee we have, but unfortunately we are faced with the difficult reality that reductions are necessary to work through this challenging market environment,” the company said in a statement.

The layoffs come in the midst of oil prices that have fallen by more than 60% because of and global glut in supplies. Last month, oil services firm Schlumberger said it would lay off 9,000 employees. Meanwhile, rival Baker Hughes BHI said it would cut 7,000 jobs. Last week, Weatherford International WFT, another oil services firm, said it would lay off 8,000 workers. A study released earlier this month showed that the industry lost some 21,000 jobs in January alone.

Halliburton HAL said that these layoffs were not a result of its recent plans to acquire rival firm Baker Hughes for $34.6 billion. It did not provide further detail on the areas to be targeted for cuts other than to say they would impact all areas of its operations.

Halliburton’s cuts come on top of plans announced in December to slash 1,000 jobs outside the US.